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Global stocks

Coles Group reported 1H22 results reflecting modest sales growth despite cycling elevated sales

Investment Thesis

  • Strong market position in supermarkets, with significant scale and penetration providing a competitive advantage.
  • Increasing private labels penetration – COL recently reiterated its target of 40% penetration.
  • Relatively defensive earnings (food tends to be largely non-discretionary).
  • Undemanding valuation relative to main domestic competitor Woolworths. 
  • Improved focus and capital allocation now that the Company is demerged. 
  • Supply chain automation and upgrades should lead to efficiency gains.
  • In our view, the deal with Ocado puts Coles in a leadership position for online delivery. 
  • Flybuys is a highly attractive asset which could be monetized. 

Key Risks

  • Significant competitive pressures (including the emergence of new players) could erode margins. 
  • Management resets earnings base at the upcoming Strategy update in June 2019.
  • Online disruption (full online offering).
  • Automation and supply chain upgrades will require significant capital expenditure, cost of which has not been fully identified. 
  • Balance sheet could be stretched once adjusted for leases. 
  • Cost inflation runs ahead of top line growth. 

1H22 Results Highlights 

  • Sales revenue growth of +1.0% to $20.6bn and +9.2% on a two-year basis despite cycling elevated Covid-related sales in the pcp.
  • EBITDA of $1,762m was down -2.2%, and EBIT of $975m, was down -4.4% and impacted by higher Covid-19 disruption costs, related travel restrictions on Express’ earnings and transformation project costs. EBIT margin of 4.7%, was down -27bps.
  • NPAT of $549m, was down -2.0%.
  • Smarter Selling benefits in excess of $100m in 1H22; On track to deliver over $200m of benefits in FY22.
  • Cash realisation of 117% and a strong balance sheet (leverage ratio of 2.7x) with a net cash position of $54m (excluding lease liabilities). COL retained solid investment grade credit ratings with S&P and Moody’s.
  • The Board declared a fully franked interim dividend of 33.0cps and retained an annual target dividend payout ratio of 80% to 90%.
  • In February 2020, Coles conducted a review into the pay arrangements for all team members who received a salary and were covered by the General Retail Industry Award 2010 (GRIA). To date COL has incurred $13m of remediation costs.

Company Profile 

Coles Group Ltd (COL) is an Australian retailer (supermarket and liquor), demerged from Wesfarmers (WES) which acquired the business in 2007. As at 30 June 2018, Coles processed more than 21 million customer transactions on average each week, employed over 112,000 team members and operated 2,507 retail outlets nationally. The Company has three main operating segments: Supermarkets, Liquor and Convenience. The Company will also retain a 50% ownership stake in flybuys loyalty programs. 

(Source: BanyanTree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Small Cap

Ardent Leisure Buys Family Entertainment Venues in Colorado

Business Strategy and Outlook

Ardent Leisure’s underlying fundamentals is moderated by the wider macroeconomic factors that influence its operations and the current restructuring efforts to restore earnings after the recent upheavals. Of greater concern is the near-term impact of the coronavirus on Ardent’s operations and its financial position, especially theme parks. But cost-cutting and government assistance measures have provided relief. RedBird’s USD 80 million investment in June 2020 for an initial 24.2% preferred equity interest in Main Event secures the U.S. family entertainment chain’s funding position. Furthermore, RedBird has the option to acquire an additional 26.8% interest at a future date, with the valuation to be based upon 9.0 times EBITDA at the time of exercising the option, subject to a minimum equity floor price.

Beyond the current coronavirus crisis, Ardent Leisure possesses solid leisure and entertainment assets that all operate in intensely competitive markets. These assets compete for the leisure dollars of consumers who are spoilt with alternatives, especially in this online digital world, where most traditional entertainment activities can now be enjoyed in a virtual setting. Furthermore, most of the group’s businesses are relatively capital-intensive, particularly as Main Event expands its venue footprint and as Ardent strives to keep up with competing leisure options and stay fresh in consumers’ minds. The situation is exacerbated by cyclical factors, with consumer discretionary spending highly leveraged to swings in general economic conditions.

Financial Strength

Ardent has AUD 119 million of net debt on the balance sheet, as at the end of December 2021. This comfortable position with AUD 93 million in available liquidity for Main Event is mainly thanks to Redbird’s USD 80 million (AUD 100 million) capital injection into the U.S. business, in return for a 24.2% preferred equity stake. The Queensland government’s recent tourism-friendly three-year AUD 64 million loan package (plus AUD 3 million grant) also means the Australian theme parks unit now has AUD 18 million of available liquidity.

Bulls Say’s

  • COVID-19 has inflicted significant damage on Ardent Leisure’s businesses and the first and foremost question is how long it will take for businesses to return to pre-pandemic levels. 
  • Ardent Leisure’s businesses provide consumers with affordable leisure and entertainment destinations, although demand dynamics are highly leveraged to discretionary spending patterns. 
  • Competition is fierce for the group’s operations, with proliferating alternatives competing for consumers’ leisure dollars.

Company Profile 

Ardent Leisure is an owner and operator of leisure assets. Its theme park operations are situated in Australia, including Dreamworld and WhiteWater World on the Gold Coast. The group also runs Main Event, a growing portfolio of family entertainment operations in the United States, offering bowling, arcade and various other leisure activities.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

G8 Education Ltd Long term Outlook remains positive with growing population; Announced share buyback

Two young women talking together with a tablet in the living room. They sit spaced apart to prevent the virus.

Investment Thesis

  • Trading below our valuation. 
  • Long-term outlook for childcare demand remains positive with growing population (organic and net immigration). 
  • Greater focus on organic growth as well as acquired growth. 
  • National footprint allows the Company to scale better than competitors and mum and dad operators.
  • Potential takeover target by a global operator. 
  • Leverage to improving occupancy levels – (rough estimates) a 1.0% improvement in occupancy equates to $10-11m revenue and approx. $3m EBIT benefit.

Key Risk

  • Execution risk with achieving its operating leverage and occupancy targets.
  • Increased competition leading to pricing pressure. 
  • Increased supply in places leading to reduced occupancy rates. 
  • Value destructive acquisition(s). 
  • Adverse regulatory changes or funding cuts to childcare.
  • Recession in Australia.
  • Dividend cut   

CY21 Results Highlights Given the disruption to CY20 results, comparing the CY21 results to pre-Covid CY19 results. 

  • Group core revenue of $828m was down -6.9% (or down ~$62m) vs CY19 due to lower occupancy (down 2.1% vs CY19) impacting revenue by ~$50m and a $48m impact from the centers divested since CY19. Partly offsetting these were higher average net fees of $16m and $20m of temporary government support relating to Covid-19. 
  •  Core centre NPBT of $137.8m was down -7.7% on CY19, however core centre NPBT margin of 16.6% was mostly flat on CY19 (16.8%) driven by cost management (effective booking and attendance levels; roster optimization) and removal of negative or low margin centers through lease surrender or divestment. 
  •  Group’s cash conversion of 107% was higher vs CY19 101% despite lower overall operating cash flows (driven by lower EBITDA), in part driven by the benefits of lower interest payments (refinance and lower net debt levels). 
  •  GEM finished the year with a strong balance sheet, with a net debt position of $26m and leverage (net debt / EBITDA) of 0.2x. 
  • The Board declared a fully franked dividend of 3cps, representing a payout ratio of 56% and within the target payout ratio range of 50-70% of NPAT. The Company also announced an on-market buyback “to be determined by appropriately balancing between shareholder returns and leverage levels, the uncertain earnings recovery outlook driven by Covid-19, the funding of strategic priorities including the improvement program and the property investment program and other funding needs included for wage remediation and network optimization.”

Company Profile

G8 Education Limited (GEM) owns and operates care and education services in Australia and Singapore through a range of brands. The Company initially listed on the ASX in December 2007 under the name of Early Learning Services, but later merged with Payce Child Care to become G8 Education.

(Source: Banyantree)

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

Nine Entertainment Co reported a solid 1H22 result; Strong growth in Company’s digital assets and its FTA TV asset

Investment Thesis

  • Upside potential to NEC’s share price from investors ascribing a higher value for Stan, NEC’s subscription video of demand (SVOD). Stan is now cash flow positive and profitable, with margins having the potential to surprise on the upside. 
  • Relatively attractive dividend yield of ~4%. 
  • NEC is now a much more diversified business, with revenue not dominated by traditional FTA TV but also attractive digital platforms and assets. 
  • Cost out strategy – looking to remove $230m in structural costs.  
  • Corporate activity given NEC’s strategic assets.
  • Trading below our valuation. 

Key Risks

  • Competitive pressure in Free to Air (FTA) TV and SVOD. 
  • Stan growth (subscriber numbers or breakeven point) disappoints market expectations. 
  • Structural decline in TV audiences continues to impact sentiment towards the stock. 
  • Deterioration in advertising markets.
  • Cost blowouts in obtaining new programming/content.
  • Increased competition from Netflix and Disney.

1H22 result highlights. 

  • Group revenues of $1.33bn was up +15% on pcp and group operating earnings (EBITDA) of $406.3m was also up +15% on pcp, driven by ongoing momentum in advertising and subscription businesses. Group NPAT of $212.9m was up + 20% on pcp. 
  •  EPS of 12.5cps was up +20% and the Company declared a fully franked dividend of 7cps (up +40% YoY), which equates to 56% of NPAT. 
  •  NEC retains a very strong balance sheet with net leverage (wholly owned) of 0.1x and net debt of $63m. 
  • Management noted that CY22 has started strongly across all platforms and advertisers, across all major categories. NEC retains a strong balance sheet, with a (wholly owned) leverage ratio of 0.1x, which in as per analyst view at some point will provide management with the option to undertake value accretive inorganic growth initiatives or additional capital management.
  •  Positive on the medium-term earnings outlook for NEC and are attracted to a diverse asset base (including Stan / Domain). With the stock trading on a reasonable dividend yield of ~5% (fully franked) and below our valuation, and thus maintain Buy recommendation by banyantree analysts.

Company Profile

Nine Entertainment Co (NEC), through its subsidiaries, broadcast news and current affairs, sporting events, comedy, entertainment and lifestyle programs. Nine Entertainment serves customers throughout Australia. NEC has repositioned itself from a linear free-to-air broadcaster, to a creator and distributor of cross-platform, premium content. While the channel Nine Network remains core, it is now complemented by subscription video on demand (SVOD) provider Stan, a live streaming and catch-up service 9Now, digital network nine.com.au and array of digital content.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

MongoDB is well set to grow at a robust pace

Business Strategy and Outlook

Since 2007, MongoDB has amassed millions of users of its document-based database, as workload shifts to the cloud has accelerated data collection growth as a whole and thus the need for architectures to store such data (particularly NoSQL variants like document-based databases). MongoDB appears to be doing anything but losing steam, as its database technology has remained the most desirable database (both SQL and NoSQL included) for professional developers to learn globally over the last four years, according to Stack Overflow. It is seen such interest will persist as MongoDB’s more recent cloud database-as-a-service and data lake offerings help ensure MongoDB’s rich features transform to meet new technological needs. 

The database market is booming–growing exponentially as a result of migrations to the cloud. Once enterprise workloads are on the cloud, scaling, collecting, and analyzing data becomes easier because of how effortless it is to scale data storage in the cloud. As a result, it is likely that the amount of data collected and analytical computations on such data in the cloud will continue to dramatically increase, in turn, benefiting many database providers, particularly MongoDB. It is anticipated MongoDB is considered the premier document-based DB, with extremely rich features–from in-database data transformation to instant interoperability on multiple cloud platforms. It is alleged the majority of this net new data to be stored is largely for hefty analysis, thus requiring a NoSQL database, like MongoDB, due to its ability to store unindexed or “unknown categories” of data. 

With significantly more opportunity to go in converting customers to its cloud database-as-a-service product, Atlas, which represents 50% of all revenue and brand new opportunity for the company’s just-released data lake offering, it is likely MongoDB is well set to grow at a robust pace and profit from such scale. It is held also believe that MongoDB has a sticky customer base and could eventually merit a moat down the road.

Financial Strength

It is alleged MongoDB is financially stable given the early stages of the company, as analysts are confident the company will generate positive free cash flow in the long term. MongoDB had cash and cash equivalents of $1.83 billion at the end of fiscal 2022 with $1.14 billion in convertible debt on its balance sheet–due in both 2024 and 2026. It is foresee that MongoDB will become free cash flow positive in fiscal 2026 after which is believed MongoDB will continue to invest heavily back into its business rather than distributing dividends or completing major repurchases of its stock. Analysts model minor acquisitions in analysts explicit 10-year forecast, though it is held MongoDB will continue to focus primarily on in-house R&D.

Bulls Say’s

  • MDB’s document-based database is best equipped to remove fear of vendor lock-in and is poised for a strong future. 
  • MongoDB’s new data lake could gain significant traction, making MongoDB even stickier, as it is alleged data lakes have even greater switching costs than databases. In turn, this could further boost returns on invested capital. 
  • MongoDB could eventually launch its own data warehouse offering, which would further increase customer switching costs.

Company Profile 

Founded in 2007, MongoDB is a document-oriented database with nearly 33,000 paying customers and well past 1.5 million free users. MongoDB provides both licenses as well as subscriptions as a service for its NoSQL database. MongoDB’s database is compatible with all major programming languages and is capable of being deployed for a variety of use cases. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

HT&E Ltd : Delivered Strong FY21 Result In spite Of Lockdowns

Investment Thesis:

  • It is anticipated an improvement in radio advertising markets over the medium term and expect solid demand for radio as a medium for advertising agencies. 
  • Further cost outs, specifically significantly lower corporate overheads costs. 
  • Potential corporate activity given changes to media ownership rules. 
  • Upside to the valuation of Soprano (25% interest) 
  • Ongoing capital management initiatives.  
  • Solid balance sheet.

Key Risks:

  • Decline in advertising dollars (radio and outdoor), especially if the retail sector in Australia comes under pressure.
  • Radio experiences structural disruption.
  • Increased competition from major player(s) on tenders. 
  • Execution risk with international expansion.
  • Hong Kong could become a drag on group performance (Coronavirus or protests escalate). 
  • New and extensive Covid-19 related lockdowns are reintroduced nationwide.  

Key highlights:

HT&E (HT1) delivered a strong FY21 result on the back of a solid performance by radio in the back half of CY21 despite lockdowns. Group revenue of $225m was up +16% YoY and EBITDA of $59.8m up +21% on the back of solid top line growth and good cost management. The Company also closed the acquisition of 46 radio stations focused on regional markets from Grant Broadcasters, with management calling out $6-8m of revenue opportunities in CY22. The resolution to the ATO matter over the year was also a positive.

  • Driven by a resilient radio market, group revenue of $225m was up +15% YoY (or up +16% on a like-for-like basis). The Company saw improved ad spend in the second half of CY21 despite extended government-enforced lockdowns.  On the back of strong top line growth and good cost management, HT1 delivered EBITDA of $59.8m up +21% and EBIT of $45.9m up +41%. Group NPAT of $28.8m was up +87% YoY. 
  • The Company declared a final dividend of 3.9cps, taking the full year dividend to 7.4cps fully franked. Management is committed to a dividend payout ratio of 60-80%, subject to market conditions.
  • Balance sheet is in a strong position with net cash position of $189.1m. Debt of $67.2m and cash reserves were utilized to fund the acquisition of 46 radio stations from Grant Broadcasters in early January 2022. Subject to market conditions, management expects leverage to be below 1.0x by the end of CY22.
  • Total segment revenue was up +12% to $195.6m, with Radio revenues were up +13% (maintaining its momentum) and Digital audio revenues up +48% (excluding disposed businesses) with podcasting the main driver. Segment costs were up +14% on a like basis driven by higher cost of sales on improved revenues, while people and operating expense came in at the low end of the guidance provided at the half year result. 

Company Description: 

HT&E Limited (HT1) is a media and entertainment company with operations in Australia, New Zealand and Hong Kong. The Company operates the following key segments: (1) Australian Radio Network (ARN) – metropolitan radio networks including KIIS Network, The Edge96.One and Mix106.3 Canberra; (2) Hong Kong Outdoor (Cody) – Billboard, transit and other outdoor advertising in Hong Kong, with over 300 outdoor advertising panels and in-bus multimedia advertising across 1,200 buses; and (3) Digital Investments – digital assets including iHeartRadio, Emotive and Conversant Media.    

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Small Cap

Nitro Software expects attractive growth runway

Investment Thesis

  • Sizeable market opportunity of US$28bn TAM (company estimates which is based on ground up model taking into account customer contract values).
  • Established a solid foundation to build from – the Company has penetrated 68% of the Fortune 500 companies and whilst initial involvement with these companies may be small however it provides opportunity to scale up with these customers (approx. 10% of the Fortunes 500 customers have 100 or more licensed users).  
  • Structural tailwinds – ongoing migration to online with businesses looking to digitize manual, paper driven processes.
  • Looking to become a platform.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers.   

Key Risks 

  • Rising competitive pressures, especially the larger players like Adobe Inc and DocuSign
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.

Bulls Say’s

  • Revenue excluding Connective of US$50.7m, was up +26%, and at the top end of the upgraded guidance range. Revenue including Connective was US$50.9m. Annual Recurring Revenue (‘ARR’) excluding Connective was US$40.1m, up +41% and in line with guidance (reaffirmed in October 2021 of US$39m – US$42m). ARR including Connective was US$46.2m, up +62%.
  • Operating EBITDA loss excluding Connective was US$7.4m, and including Connective was US$7.6m, in line with the upgraded guidance range of US$7.5m – US$8.0m provided by the Company in January 2022, and significantly lower than the guidance range of US$11m – US$13m provided at the beginning of FY2021.
  • NTO exceeded 1m active subscription PDF licences, reaching 1.1m at FY21-end.
  • NTO executed 2.2m Nitro Sign eSignature requests excluding Connective eSignatures, up +102%, and more than 22m eSignature requests including Connective.
  • NTO completed a A$140.0m capital raise and hence NTO retains a strong balance sheet with no debt and cash and cash equivalents of US$48.2m including Connective.

Company Profile 

Nitro Software Ltd (NTO), founded in 2005 & listed in 2019, is a global document productivity software company. NTO offers integrated PDF productivity, eSignature and business intelligence (BI) tools through a horizontal SaaS and desktop-based software suite. The Company helps customers move to 100% digital document workflows, eliminating paper and accelerating business processes. NTO serves customers around the world and counts 68% of the Fortune 500 companies among its customers. In total, NTO has over 12,000 business customers (who are defined as having at least 10 licensed users) and across 155 countries.  

(Source: BanyanTree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Ford Is Focusing Its People Better by Separating the Combustion and Electric Vehicle Businesses

Business Strategy and Outlook

Ford is also focused on spending on the most profitable vehicles and the March 2022 split of combustion and BEV into their own segments (Ford Blue and Ford Model e) allows talent to focus on combustion hits like Bronco and F-Series as well as build on the success of the F-150 Lightning BEV and Mustang Mach-E. Restructuring in foreign markets is underway and as of year-end 2021, Ford projects up to $2.4 billion of EBIT charges in 2022, bringing total costs for its Global Redesign program to about $11 billion since 2018. Up to about $7 billion of cash may be spent to fund the restructuring, which includes downsizing in markets like Europe and Brazil, but all but about $1 billion of this cash will be spent across 2018-22. Ford Blue seeks about $3 billion in cost reductions.

Ford is building more models on common platforms, which should improve economies of scale. In 2007, Ford had 27 platforms but now has five flexible architectures across unibody, body on frame, and battery electric vehicles. This move allows Ford to switch production faster to meet changing demand while cutting costs via better economies of scale. In the past, Ford had a different platform in each segment for each part of the world, which wasted billions. Lincoln also entered China in fall 2014 and the Mustang Mach-E EV is bringing new customers in U.S. coastal markets, with 70% of its early buyers new to Ford. The F-150 Lightning BEV pickup has over 75% of its reservation holders new to Ford and it and the Transit BEV are on sale in 2022.

Financial Strength

Year-end 2021 global pension underfunding totaled only about $326 million compared with about $8.2 billion at year-end 2015, while salaried employee retiree healthcare added another $6 billion of shortfall. The entire pension underfunding is from pay-as-you-go plans (mostly from Germany and U.S. senior management plans) that are always unfunded and pay benefits paid from general corporate cash. Management guides funded plan contributions to be limited to annual service cost. 2022 contributions are guided at $600 million to $800 million, plus $390 million of benefits for unfunded plans. Unfunded plan benefit payments will likely be around $300 million to $400 million annually.

Automotive debt excluding legacy obligations at year-end 2021 was $20.4 billion, down from $34.4 billion at the end of 2009, but Ford did issue $8 billion in bonds in April 2020 to deal with the coronavirus fallout and we like that Ford redeemed $7.6 billion of expensive bond debt for $9.3 billion in December 2021. At the end of 2021, Ford had available automotive liquidity of $41.8 billion, excluding its 12% stake in Rivian, with $25.9 billion of that amount in cash and securities. In September 2021, Ford amended its credit lines to have a $10.1 billion line through September 2026, a $3.4 billion line in September 2024, and a $2 billion supplemental line also in September 2024. The lines have their rate partially tied to ESG metrics around the environment.

Bulls Say’s

  • Ford’s turnaround will take lots of time due to many restructuring projects around the world but so far the international business seems to be getting better. 
  • Ford is focusing its investments where it gets the best return, which is why mostly exiting North American car segments and production in South America, is the right move, in our opinion. 
  • Ford has tried to remove some administrative layers, and we like CEO Farley’s aggressive moves into electric vehicles, something Ford had been slow to do in the past.

Company Profile 

Ford Motor Co. manufactures automobiles under its Ford and Lincoln brands. In March 2022 the company announced that it will run its combustion engine business, Ford Blue, and its BEV business, Ford Model e, as separate businesses but still all under Ford Motor Company. The company has about 12.5% market share in the United States, about 6.5% share in Europe, and about 2.4% share in China including unconsolidated affiliates. We expect market share increases as inventory improves coming out of the chip shortage. Sales in the U.S. made up about 64% of 2021 total company revenue. Ford has about 183,000 employees, including about 56,000 UAW employees, and is based in Dearborn, Michigan.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

PointsBet Holdings Ltd (PBH) reported 1H22 reflecting mixed results – on a statutory basis, revenue of $139.1m is up +85%

Sydney, Australia - March 14, 2013: The Australia Stock Exchange big board viewed from the sidewalk in front of the exchange building in Sydney. The ASX board displays real-time stock information for companies listed on the exchange.

Investment Thesis:

  • U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalizes the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033.
  • Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team has the right strategy in place to build share in the U.S. 
  • Proprietary technology stack – The speed and useability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced.
  • Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.

Key Risks:

  • Rising competitive pressures.
  • Adverse regulatory change in key operating jurisdictions (Australia / U.S.).
  • Loss of market share in key regions or growth rate fails to meet market expectations.
  • Higher than expected costs – especially around investment in sales & marketing to drive market share.
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 
  • Cyber-attack on PBH’s platform.
  • Deeply discounted capital raising. 

Key Highlights:

  • PointsBet Holdings Ltd (PBH) reported 1H22 reflecting mixed results – on a statutory basis, revenue of $139.1m is up +85%, driven by Australia Trading and U.S Trading. EBITDA loss of -$130.6m, is -83% weaker than the pcp, with Australia Trading seeing a loss of -$16.1m versus $8.0m in the pcp.
  • On a normalised basis, net revenue of $139.1, and gross profit of $54.7m, are significant increases from $75.1m and $54.7m, in the pcp. Operating expenses increased to $180.8m, up from $95.1m in 1H21. EBITDA loss of $126.0m is significantly weaker than the loss of $69.0m in 1H21.
  • Australia continues to go from strength to strength. Canada is on the verge of an exciting hard launch, which will leverage our global capabilities with a brilliant local strategy and the U.S. is now gaining scale being live in 10 states.  As it relates to North America, PointsBet has positioned itself as an indispensable significant player in the market.
  • The operators that own their technology and can execute a national strategy will be the operators that can maximize profit margins and maximize the huge North American opportunity”. The rating is given as buy because PBH offers attractive risk reward at these levels.

Company Description:

PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and PointsBetting. 

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks

Cochlear Limited’s net profit was up +26% to $158m, driven by strong sales growth & improved gross margin.

Investment Thesis:

  • Attractive market dynamics – growing population requiring hearing aids, improving health in EM providing more access to devices such as hearing aids and relatively underpenetrated market. There remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long‐term sustainable growth of COH. 
  • Market leading positions globally.
  • Direct-to-consumer marketing expected to fast track market growth.
  • Best in class R&D program (significant dollar amount) leading to continual development of new products and upgrades to existing suite of products.
  • New product launches driving continued demand in all segments.
  • Attractive exposure to growth in China, India and more recently Japan.
  • Solid balance sheet position.
  • Potential benefit from Australian tax incentive. Subject to successful passage of legislation, the patent box tax regime for medical technology and biotechnology should encourage development of innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%, with the concession applying from income years starting on or after 1 July 2022.

Key Risks:

  • Product recall.
  • Sustained coronavirus outbreak which delays recommencement of hospital operations in China.
  • R&D program fails to deliver innovative products.
  • Increase in competitive pressures.
  • Change in government reimbursement policy.
  • Adverse movements in AUD/USD.
  • Emerging market does not recoup – significant downside to earnings. 

Key Highlights:

  • Revenue increased +12% to $815m driven by demand for sound processor upgrades and new acoustic implant products, despite Cochlear implant revenue continuing to be impacted by Covid‐related restrictions which caused lower overall operating theatre capacity. Cochlear implant units increased +7% to 18,598.
  • Statutory net profit of $169m includes $12m in innovation fund gains after‐tax. Underlying net profit was up +26% to $158m, driven by strong sales growth and improved gross margin, with some benefit from lower‐than‐expected operating expenses.
  • The Board declared an interim dividend of $1.55 per share, up +35% and equates to a payout of 65% of underlying net profit (up from 61% in the pcp). Management expects dividend payout to be around 70% for the full year, in line with our target payout.
  • COH’s balance sheet remains strong with net cash of $506m and operating cash flows sufficient to fund investing activities and capex.
  • Cochlear implant units increased +7% to 18,598 units, driven by strong growth in emerging markets (up +30%), offsetting a decline in developed markets (down -2%). Revenue was up +2% to $457.9m, with a mix shift to the emerging markets.
  • For the emerging markets, unit volumes overall increased around +30% with a strong recovery from Covid‐related surgery deferrals experienced across most countries. Surgeries in a few countries, including China, are trading above pre‐Covid levels. India and Brazil are recovering well although volumes are still materially below pre‐Covid levels.
  • In service segment revenue increased +21% to $256.5m, driven by a growing recipient base. Sound processor upgrade revenue saw a strong growth due to pent-up demand following the restricted access to clinics during Covid lockdowns.
  • In acoustics segment Revenue increased +40% to a record $100.9m, reflecting strong demand for new products and a recovery from Covid‐related surgery delays.

Company Description:

Cochlear Ltd (COH) researches, develops and markets cochlear implant systems for hearing impaired people. COH’s hearing implant systems include Nucleus and Baha and are sold globally. COH has direct operations in 20 countries and 2,800 employees. 

(Source: Banyantree)

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